Solid performance

Centrale del Latte d'Italia 16 May 2018 Outlook
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Centrale del Latte d'Italia

Solid performance

Q118 results

Food & beverages

16 May 2018

Price

€3.24

Market cap

€45m

Net debt (€m) at 31 March 2018

69.1

Shares in issue

14.0m

Free float

37%

Code

CLI

Primary exchange

STAR (Borsa Italiana)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.0)

(3.9)

14.9

Rel (local)

(6.7)

(10.5)

3.4

52-week high/low

€4.3

€2.8

Business description

Centrale del Latte d'Italia produces and distributes fresh and long-life milk (UHT and ESL) and dairy products such as cream, yoghurt and cheese. It has a leading position in milk in the Piedmont region of northern Italy and it has expanded to the Veneto, Liguria and Tuscany regions.

Next events

H118 results

02 August 2018

9M18 results

30 October 2018

Analysts

Sara Welford

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Centrale del Latte d'Italia is a research client of Edison Investment Research Limited

Despite the challenging economic and political environment in Italy during Q118, Centrale del Latte d’Italia’s (CLI) price increases, implemented mostly during Q217, continued to drive revenue growth. We should see the effect of this subside during Q218 as we start to cycle a full year of price increases. Vegetable-based drinks and the export business continued to witness excellent growth, albeit from a low base. At this early stage, we leave our FY18 forecasts unchanged, and our fair value remains at €3.30 per share.

Year end

Total revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/16

119.8

(2.09)

(19.57)

6.00

N/A

1.9

12/17

187.5

(0.11)

(2.21)

0.00

N/A

0.0

12/18e

184.4

0.35

1.64

4.29

197.6

1.3

12/19e

186.2

1.38

6.43

4.29

50.4

1.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Price increases still driving revenue growth

Price increases were implemented on 1 April 2017 to offset some cost inflation and were fully rolled out on 1 June 2017, so we should see the effects of these subside during Q218 as we lap the price increases. Q118 organic growth continued to be impressive at 5.1%, with EBITDA margin of 3.8%. Raw materials remain a challenge, with liquid milk prices now softening somewhat, but butter and cream prices are still rising. For FY18, we forecast 0.5% revenue growth and EBITDA margins up 30bp to 4.2% – unchanged from our previous estimates.

Category performance mixed

We note there was a divergence of performance across CLI’s categories: fresh milk has stabilised, while UHT milk continued to decline amid strong promotional activity by the competition. The yogurt segment and prepared salads witnessed the greatest declines as competition remained tough in the former, and a tough economic backdrop affected consumption of the latter. Bulk milk and cream is a by-product of dairy processing and is mostly influenced by seasonal supply and demand. Other prepared products continued to do well, as more lines were added to the jarred ready-prepared sauces and vegetables. Raw materials were also a mixed picture, with raw milk costs starting to decline slightly, while butter and cream prices remained firm.

Valuation: Fair value of €3.30 per share

Our DCF model points to a fair value of €3.30 per share (unchanged), implying that the stock is fairly valued. We calculate that for FY19e CLI now trades on a P/E of 50.4x and EV/EBITDA of 13.0x. The P/E is inflated in part due to the high interest costs as a result of the elevated level of debt in the short term associated with the merger by incorporation with CLF in September 2016. On EV/EBITDA, CLI trades at a premium of c 40% to our peer group of dairy processors. Our EPS forecasts move up 6% and 2% for FY18 and FY19 respectively on the back of a lower dividend forecast, but our underlying forecasts remain unchanged.

Investment summary

Company description: Beyond milk

CLI started as Centrale del Latte di Torino (CLT), a milk supplier/distributor in the Turin area. Over time, the company extended its reach to the whole Piedmont region, where it is market leader, and subsequently added two more regions (Veneto and Liguria) in Northern Italy. In 2016 it merged with Centrale del Latte di Firenze, Pistoia e Livorno (CLF), adding Tuscany as a new region, and the enlarged entity was renamed Centrale del Latte d’Italia (CLI). The main focus remains milk, but over the years the company has added long-life and extended shelf-life (ESL) milk, fresh and long-life cream, yoghurt and fresh cheeses. More recently, it has distributed fresh pasta, eggs and prepared salads.

The company was founded in 1950 but largely remains a family-owned business. The largest shareholder is Finanziaria Centrale del Latte di Torino, which is controlled by the CLT founding families and in which the municipality of Turin owns a 20% stake. Another shareholder is Lavia, which is also owned by one of the founding families.

Valuation: Fair value of €3.30

We calculate a fair value based on our DCF model of €3.30, which represents 2% upside. The main sensitivities to our forecasts and valuation are outlined below. In the longer term, the company is trying to diversify away from liquid cow’s milk, and into fresh produce and export markets for long-life milk. These are more attractive and profitable markets.

As an alternative to our DCF valuation, we look at CLI’s key metrics versus the peer group. We calculate that CLI now trades on 198x 2018e P/E and 13.8x 2018e EV/EBITDA. The P/E is inflated due to the relatively elevated debt level in the short term associated with the CLF acquisition, and hence the high interest costs. For 2019, these ratios fall to 51.4x and 13.0x respectively. On EV/EBITDA, CLI trades at a premium of 40% to the average of our peer group of dairy processors.

Financials: Capital investment dents cash flow

The Q118 results demonstrate the company has started the year well, despite the challenging domestic political and economic environment. That said, we expect comparatives to get tougher for the rest of the year, as we start to lap the price increases implemented during Q217. We therefore leave our forecasts unchanged at this stage. Net debt remains high, at €62.4m at December 2017 (and €69.1m at 31 March 2018). Given management’s plans to upgrade the Turin plant, we forecast net debt of €67.8m at end FY18, which equates to 8.7x net debt/EBITDA coverage, although it declines to 7.8x by FY21.

Sensitivities: Raw milk pricing is key variable

CLI’s key sensitivities include:

Input cost inflation, particularly for raw milk, which is its main raw material.

The supply/demand balance affecting the achievability of price inflation on finished goods.

Consumer consumption patterns and the competitive landscape. The economic backdrop has been weak in the domestic Italian market.

Private label gaining share at the expense of the company’s brands.

The CLF merger has taken up a significant amount of management time. No hard synergies were expected from the merger, but we believe the enlarged business should be in a better negotiating position with suppliers, given its increased scale, and revenue synergies have come through as new products have been rolled out across existing distribution channels.

Company description: Not just milk

CLI is the third-largest dairy producer in Italy, after Parmalat and Granarolo. The company has a strong base in fresh milk, UHT milk and yoghurt. It has also diversified into branded fresh food products, with ranges of eggs, cheese, pasta, vegetables and ready-to-eat salads, and over the last few years it has also successfully launched non-dairy milk drinks such as rice, soy and oat milk. CLI’s key differentiating factor vis-à-vis its larger competitors is that it is a regional rather than a national player, as it operates in four main regions in Italy. We illustrate the breakdown of revenues by category and by geography in Exhibit 1 and 2 below.

Exhibit 1: Group revenue split by category (FY17)

Exhibit 2: Estimated group revenue split by geography

Source: Centrale del Latte d’Italia data

Source: Edison Investment Research

Exhibit 1: Group revenue split by category (FY17)

Source: Centrale del Latte d’Italia data

Exhibit 2: Estimated group revenue split by geography

Source: Edison Investment Research

Although CLI is significantly smaller than Parmalat and Granarolo, it is a regional champion, with leadership positions in the regions in which it competes. CLI has five factories, which are all well invested with the latest technology for the production, treatment and packaging of its products. The Turin plant is scheduled for an upgrade from 2018, with a focus on increasing efficiency on the logistics side, while the legacy CLF business is due to be migrated to the existing SAP platform.

CLI has created its own strong local brands to support its portfolio. Over the past three years, CLI has set its sights on international expansion: it started exporting UHT milk to China, and also signed an agreement with a distributor for the UAE, Kuwait, Saudi Arabia and Oman. Last October it signed a deal with Alibaba to accelerate its push into China.

The merger with CLF was large (CLF sales were c €85m in 2015 vs CLT’s sales of €97m), and we expect it will take a few years for the integration to be fully complete. Nevertheless, we believe more acquisitions are likely in future as the business continues to grow and the strategy to diversify and to enhance scale continues.

Fresh milk and ESL

The Italian fresh milk and extended shelf-life (ESL) market was worth €543m in 2017 (source: IRI Infoscan Hypermarkets + Supermarkets) but was highly localised, with different players in different regions of Italy. While fresh milk typically lasts a few days before souring, ESL milk lasts for up to a month, but still requires refrigeration. Milk brands tend to be local or regional, and indeed consumers are used to buying milk brands from their own local province or region. There has been some degree of consolidation, with Parmalat and Granarolo emerging as the two leading players on a national scale, both with c 20% market share, but even they use several local brands in addition to their main brand (eg Centrale del Latte di Roma and Centrale del Latte di Milano, respectively). A significant proportion of milk in Italy is bought on a regular basis, and hence in local shops rather than in supermarkets or hypermarkets. This also affects distribution, and tends to favour local and regional brands.

The market has steadily declined over the last few years, mainly as a result of volume declines. The economic crisis in Italy caused consumption to fall across the board in the consumer space, and more recently a fashion for vegan and dairy-free diets has also caused a shift in consumer behaviour, which has led to volume declines. CLI has been gaining share in the regions in which it operates, thanks to the strength of its brands.

Exhibit 3: Fresh milk and ESL share at national Italian level

Exhibit 4: Fresh milk and ESL milk share in Piedmont, Valle d’Aosta, Liguria, Veneto and Tuscany

Source: IRI Infoscan Hypermarkets + Supermarkets

Source: IRI Infoscan Hypermarkets + Supermarkets

Exhibit 3: Fresh milk and ESL share at national Italian level

Source: IRI Infoscan Hypermarkets + Supermarkets

Exhibit 4: Fresh milk and ESL milk share in Piedmont, Valle d’Aosta, Liguria, Veneto and Tuscany

Source: IRI Infoscan Hypermarkets + Supermarkets

UHT milk

The Italian UHT milk market was worth €831m in 2017 (Source: IRI Infoscan Hypermarkets + Supermarkets). UHT milk is ultra heat-treated and hence is an ambient product with a shelf life of around three months. The ambient nature of the product means it is more widely bought as part of a bigger shopping basket and hence distribution is more skewed towards the mass retail channel. Promotion is much more prevalent in the UHT segment, although over recent years volumes have suffered for the same reasons as fresh milk, namely the economic crisis and the consumer shift away from dairy consumption. 2017, however, saw a stabilisation in the market, with value flat vs 2016. CLI’s market share is small at national level, but improves in its key markets.

Exhibit 5: UHT milk share at national Italian level

Exhibit 6: UHT milk share in Piedmont, Liguria, Tuscany and Veneto

Source: IRI Infoscan Hypermarkets + Supermarkets

Source: IRI Infoscan Hypermarkets + Supermarkets

Exhibit 5: UHT milk share at national Italian level

Source: IRI Infoscan Hypermarkets + Supermarkets

Exhibit 6: UHT milk share in Piedmont, Liguria, Tuscany and Veneto

Source: IRI Infoscan Hypermarkets + Supermarkets

In 2014 CLT began exporting UHT milk to China, and in October 2017 it announced a strategic partnership with Alibaba. Volumes remain small, but this could present an interesting growth opportunity. In 2015 CLT signed an agreement with a Dubai-based distributor.

Yoghurt

The Italian yoghurt market is dominated by the major players, with Danone, Muller and Yomo/Granarolo making up 50% of the market. CLI is a small player at both national and regional level. With deep-pocketed multinational competitors on the scene, CLI cannot compete on the R&D front with new products, but it can react quickly to new launches given its smaller size, and has been successful in tapping into the market for lactose-free/soy-based products. The market remains competitive and dominated by price promotions by the multinationals. CLI chooses not to compete on price, as it recognises it does not have the same scale as the major players, and hence in 2017 the division underperformed.

Prepared salads

This segment accounted for 3% of sales in 2017 and encompasses a range of ready-washed, dried and often pre-mixed salads. These products have been developed for the local, more traditional trade mentioned above, where a lot of fresh milk is still bought. These local shops do not have the logistics of the larger food retail chains, and hence rely on more regional fresh produce. Due to the relatively short shelf life of both fresh milk and prepared salads, CLI can leverage some of its fixed costs and has added the prepared salads line to enhance its offering. The offering has been successfully introduced across the CLF platform, demonstrating management’s plans for revenue synergies and cross-distribution are coming to fruition. With the recent tougher economic backdrop, however, this segment has experienced some softening as consumers have gravitated towards buying traditional salads (unwashed and not pre-mixed), which are significantly cheaper.

Vegetable drinks

CLI launched a soy milk in Q213, and followed this with the launch of a rice milk in Q415. It launched an oat milk during 2016. Dairy-free milk is proving successful given the trend in Italy for vegan and dairy-free diets. Although the segment is small, growth continues to be impressive.

Bulk milk and cream

This segment acts as a by-product of the fresh packaged milk business: CLI’s contracts with its milk suppliers stipulate that CLI will buy all the milk produced by the farmer. This obviously changes daily but the main variation is due to seasonality. In addition, the volume of milk required by the fresh packaged milk business can have its own (separate) seasonal variations. Any excess milk, therefore, is sold on as bulk milk and cream to local businesses, mainly cheese- and butter-making businesses and ice cream shops or factories. The segment is very small (it accounted for 2% of sales in 2017), but is subject to wide swings as it is dependent on spot pricing.

Other packaged products

This includes a diverse range of fresh products, spanning from fresh cheese to eggs, packaged fresh pasta and pesto sauces, eggs and pre-sliced and packaged cured meats. The strategy here is the same as for the prepared salads segment, so the products have been developed for the local shops. More recently, CLI has also started to produce branded products for major players under co-packing agreements, and private label products for major European retailers. The segment accounted for 27% of sales in 2017.

Sensitivities

CLI’s key sensitivities include:

Raw material pricing: the group’s main raw material is raw milk and as a commodity this fluctuates. The company draws up annual agreements with its suppliers. The milk price is negotiated with the milk producers at the start of the ‘dairy year’, which runs from 1 April to 31 March. Prices are typically set quarterly, although there are some exceptions and some purchases are made on the spot market. CLI has good relationships with its farmers, which it values, and hence when the spot milk price falls, CLI does not gain all the benefit of the lower raw material cost as it does not believe in squeezing the farmers unreasonably. Conversely, when the spot milk price rises, therefore, CLI is slightly cushioned against sudden rises.

Supply/demand balance: this affects the achievability of price inflation on its finished goods. In recent years consumer demand in the domestic Italian market has been weak due to the fragile economic backdrop, and even defensive staples such as fresh milk have been affected. There is always the danger that private label could gain share at the expense of the company’s brands.

Consumer consumption patterns and competitive landscape: again, the economic backdrop has been weak in the domestic Italian market, but CLI has witnessed positive trends in its branded segment. In addition, the company correctly identified the consumer trend towards alternative and vegetable drinks, and is hence witnessing stellar growth in this area.

Where next?

In 2016, Centrale del Latte di Torino (CLT) executed a merger by incorporation with Centrale del Latte di Firenze, Pistoia e Livorno (CLF), and the new entity was named Centrale del Latte d’Italia (CLI). This became Italy’s third-largest dairy producer. The transaction was highly complementary as the two businesses had leading market shares at the regional level in their respective areas, and operated in similar channels. The integration is not yet complete as the legacy CLF business is due to be migrated to the existing SAP platform during FY18. The enlarged entity reported its first full financial year in March, however, and the management is already looking ahead.

The market has stabilised, and CLI operates in a mature segment.

CLI is present in four regions, which gives geographical diversification vis-à-vis the local players.

Private label accounts for c 25% of the milk market in Italy, and following a period of structural growth, it has stabilised and matured.

The management has identified several growth opportunities:

Co-packing for strategic partners. Increasingly, the multinational fast-moving consumer goods players are slimming down their assets and entering co-packing arrangements. Smaller, efficient players can benefit by improving their own capacity utilisation.

Export. Although this is still a small business, it is growing at a substantial rate. Management announced a strategic partnership with Alibaba in Q417, and there are existing distribution arrangements for the Middle East.

Online sales. During the course of FY18, management plans to push further into online food sales, in collaboration with the food retailers. At present, online sales only represent 1% of food retail spend in Italy, so the market remains nascent.

Food service. The hotel, restaurant and catering (horeca) segment remains important for the group, and management plans to continue to strengthen and develop it with new products. Its mixes for food service ice cream (Easy Gelato) and its UHT cream have been very successful.

Private label. The group has already started collaborations with national food retailers and discounters. As with co-packing, private label can provide an opportunity to improve capacity utilisation.

In order to remain competitive and retain production efficiencies, management is continuously appraising the group’s manufacturing footprint and capabilities. The logistics for the Vicenza plant have been upgraded and fully automated, while the upgrade of the manufacturing and production side is scheduled for 2018. The Turin plant is due for an upgrade during 2018, with both manufacturing and logistics being improved, and the latter being fully automated.

Valuation

CLI’s share price performance has underperformed the FTSE MIB on a three-month and six-month basis, although the shares have performed broadly in line on a 12-month basis. On 2019 estimates, CLI trades on a P/E of 50.4x and EV/EBITDA of 13.0x. The P/E multiples are inflated due to the high level of debt following the merger, and hence the high interest costs.

On EV/EBITDA, CLI trades at a premium of c 40% to the average of our peer group of dairy processors, although we note that the companies in our peer group are much larger than CLI.

Exhibit 7: Benchmark valuation of CLI relative to peers

Market cap
(m)

P/E (x)

EV/EBITDA (x)

Dividend yield (%)

2018e

2019e

2018e

2019e

2018e

2019e

Parmalat

€ 5,528.3

28.7

23.8

9.3

8.2

0.6%

0.6%

Dairy Crest

£770.0

15.1

14.2

11.2

10.5

4.2%

4.3%

Dean Foods

$916.2

15.3

12.6

5.9

5.4

3.7%

3.8%

Saputo

$16,650.8

22.4

19.6

13.6

12.6

1.5%

1.6%

Peer group average

20.4

17.6

10.0

9.2

2.5%

2.6%

CLI

€ 45.4

197.8

50.4

13.8

13.0

1.3%

1.3%

Premium/(discount) to peer group (%)

871.1%

186.6%

37.7%

41.9%

(46.8%)

(49.1%)

Source: Edison Investment Research estimates and Bloomberg consensus. Note: Prices at 14 May 2018.

Our DCF is based on our (unchanged) assumptions of a 1.5% terminal growth rate and 3% terminal EBIT margin. Our WACC of 5.8% is based on an equity risk premium of 4.5%, a borrowing spread of 5% and beta of 0.9. Below, we show a sensitivity analysis to these assumptions and note that the current share price is discounting a terminal growth rate of 1.5% with a terminal EBIT margin of 3% (which compares to CLT’s pre-merger reported EBIT margin of 2.7% in 2014 and 1.6% in 2015).

Exhibit 8: DCF sensitivity (€/share) to terminal growth rate and EBIT margin

Terminal EBIT margin

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Terminal growth

0.0%

1.00

1.54

2.09

2.64

3.19

3.74

0.5%

1.21

1.81

2.42

3.02

3.62

4.22

1.0%

1.47

2.14

2.81

3.47

4.14

4.81

1.5%

1.79

2.54

3.30

4.04

4.79

5.53

2.0%

2.19

3.04

3.89

4.74

5.60

6.45

2.5%

2.71

3.70

4.68

5.66

6.65

7.63

3.0%

3.42

4.58

5.75

6.91

8.07

9.24

3.5%

4.43

5.85

7.27

8.69

10.11

11.53

4.0%

5.99

7.81

9.63

11.45

13.27

15.09

Source: Edison Investment Research


Financials

P&L

In revenue terms, we see milk and basic dairy products as a mature category with stable or slightly declining volumes, and pricing driven mainly by the fluctuations of the underlying commodity (ie milk). We forecast 0.8% revenue CAGR translating into 6.5% EBITDA CAGR in 2017-20. We forecast some improvement in the underlying gross margin and EBITDA and EBIT margins. In particular, we have assumed 30bp EBITDA margin improvement in FY18, followed by 20bp improvement in FY19 and FY20, although fluctuations in raw material costs could affect our forecasts. The CLF merger was margin-enhancing given CLF’s higher base, and we expect the FY18 margin to see some benefit from the price increases put through during Q217. The benefit will fall away during FY18 and hence our forecast for FY19 and FY20 margin expansion falls to 20bp. In the long term, we assume the margin settles at our 3% terminal EBIT margin assumption (see our DCF valuation section).

We expect net finance costs to remain broadly flat over the forecast period. The group successfully completed a €15m bond issue during the latter part of FY17, which allows it to diversify its sources of debt. We note the terms were attractive, with a 3.25% coupon. Management has indicated that capex levels are likely to remain elevated as the Turin plant is modernised. We forecast that the operating cash flow will be largely reinvested in capex, hence debt will reduce slowly. In the longer term, however, we expect capital expenditure to normalise at much lower levels, given the business has relatively low top-line growth and is not overly capital-intensive.

We expect the tax rate to be 35% in underlying terms. It is bound to vary year-on-year depending on any exceptionals and also subject to rebates, but management guidance is for a long-term rate of c 35%.

Fluctuating commodity costs are an issue for all food manufacturers, and this is particularly the case for food that is relatively unprocessed such as fresh milk. Earnings are therefore likely to be more volatile due to changes in the raw milk price.

We have trimmed our dividend forecast for FY18-20 to €0.04 from €0.06 (as there was no dividend in FY17), as the company prioritises deleveraging. We believe management is more likely to reinstate a dividend at a lower level, to reflect the increase in number of shares as a result of the CLF merger (from 10m to 14m shares), leading to the estimated dividend-related cash outflow of €600,000.

The reduction in our dividend forecast causes a reduction in interest charge forecasts, and hence an upgrade to our EPS estimates. Our FY18 forecast moves up by 6% and our FY19 forecast by 2%.

Cash flow: Capex projects dent near-term cash flow

The Vicenza plant improvements are now complete and the packing lines and logistics there are now fully automated. The Turin plant is still undergoing an upgrade, and it is a staged process, with the upgrade of the pasteurisation phase and new tanks (completed during FY17), the automation of the logistics side (currently ongoing), and an upgrade of the production lines (FY20). On the CLF side, the legacy CLF business is due to be migrated to the existing SAP platform during FY18. This results in elevated levels of capital expenditure in the medium term, with management expecting these to normalise again by 2020. This will depress free cash flow generation in the medium term and we forecast net debt to increase marginally over the period. Following the investment, the business should be better placed to compete in a challenging environment.

Balance sheet – diversified sources of debt

Although CLI has an elevated level of debt vs its market cap (c 130%), within the consumer staples universe it is an efficient capital structure. The group’s bond issue during Q417 allowed it to diversify its sources of debt. The debt maturity profile is adequate and relatively well balanced, with 34% of debt maturing within one year as of 31 December 2017 and 24% of debt with a term over five years.

Q118 results: Good performance continues

The environment was extremely tough in the quarter, as the economic and political climate was very uncertain as a result of the general elections in Italy and there being no clear winner. Consumers generally remained cautious during Q118.

Raw materials witnessed a mixed picture during the quarter, with liquid milk prices starting to ease, while cream and butter prices continued to increase.

The yoghurt business had a tough start to the year. The overall yoghurt market was under pressure in Q1, and CLI’s business in particular suffered from increased promotional activity by the competition, which caused a loss of volume and market share. As a reminder, yoghurt only accounted for 5% of sales in FY17 so, although continued weakness is a concern, the size of the business is relatively small.

Q1 gross margins were up sharply (18.4% vs 16.4% in Q117) and this was mainly driven by the price increases implemented during Q217. Labour costs were down 20bp and EBITDA margins were up an impressive 220bp to 3.8% in Q118. We leave our underlying forecasts unchanged at this time, as it is still early in the year, and comparatives will get tougher as we start to cycle the price increases implemented during 2017. We trim our dividend forecast from €0.06 to €0.04 as we believe management is more likely to reinstate a dividend at a lower level, which reflects the increased number of shares following the CLF transaction. This results in lower interest expenses and hence an upgrade to our EPS forecasts.

Exhibit 9: Financial summary

€'000s

2014

2015

2016

2017

2018e

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

102,558

98,319

119,762

187,478

184,364

186,208

188,070

Cost of Sales

(82,415)

(78,796)

(98,652)

(153,937)

(150,287)

(151,604)

(152,932)

Gross Profit

20,143

19,523

21,110

33,541

34,077

34,604

35,138

EBITDA

 

 

5,845

4,851

2,905

7,245

7,834

8,285

8,744

Normalised operating profit

 

 

2,752

1,554

(1,254)

864

1,920

2,951

3,356

Amortisation of acquired intangibles

0

0

0

0

0

0

0

Exceptionals

(134)

145

(355)

(202)

0

0

0

Share-based payments

0

0

0

0

0

0

0

Reported operating profit

2,618

1,699

(1,609)

661

1,920

2,951

3,356

Net Interest

(811)

(678)

(692)

(996)

(1,674)

(1,673)

(1,665)

Joint ventures & associates (post tax)

(4)

(418)

(143)

107

107

107

107

Exceptionals

0

0

13,903

(81)

0

0

0

Profit Before Tax (norm)

 

 

1,937

458

(2,089)

(106)

353

1,384

1,798

Profit Before Tax (reported)

 

 

1,803

603

11,459

(309)

353

1,384

1,798

Reported tax

(1,012)

(87)

556

47

(123)

(485)

(629)

Profit After Tax (norm)

809

30

(2,153)

(310)

229

900

1,169

Profit After Tax (reported)

791

517

12,015

(261)

229

900

1,169

Minority interests

0

0

0

0

0

0

0

Discontinued operations

0

0

0

0

0

0

0

Net income (normalised)

809

30

(2,153)

(310)

229

900

1,169

Net income (reported)

791

517

12,015

(261)

229

900

1,169

Basic average number of shares outstanding (m)

10

10

11

14

14

14

14

EPS - basic normalised (€)

 

 

0.08

0.00

(0.20)

(0.02)

0.02

0.06

0.08

EPS - diluted normalised (€)

 

 

0.08

0.00

(0.20)

(0.02)

0.02

0.06

0.08

EPS - basic reported (€)

 

 

0.08

0.05

1.09

(0.02)

0.02

0.06

0.08

Dividend (€)

0.06

0.06

0.06

0.00

0.04

0.04

0.04

Revenue growth (%)

2.6

(4.1)

21.8

56.5

(1.7)

1.0

1.0

Gross Margin (%)

19.6

19.9

17.6

17.9

18.5

18.6

18.7

EBITDA Margin (%)

5.7

4.9

2.4

3.9

4.2

4.4

4.6

Normalised Operating Margin

2.7

1.6

-1.0

0.5

1.0

1.6

1.8

BALANCE SHEET

Fixed Assets

 

 

64,185

64,540

129,773

132,731

132,717

132,969

133,224

Intangible Assets

11,706

11,539

19,484

19,521

19,507

19,493

19,479

Tangible Assets

51,671

52,010

107,335

110,817

110,817

111,083

111,352

Investments & other

808

992

2,954

2,393

2,393

2,393

2,393

Current Assets

 

 

36,689

41,122

60,457

78,611

73,956

74,409

75,133

Stocks

3,438

3,541

7,698

9,114

8,898

8,976

9,055

Debtors

15,720

14,370

28,209

31,449

31,606

31,922

32,241

Cash & cash equivalents

10,051

12,192

9,521

25,475

20,878

20,938

21,263

Other

7,481

11,019

15,030

12,573

12,573

12,573

12,573

Current Liabilities

 

 

(33,232)

(35,004)

(68,199)

(77,372)

(77,437)

(77,842)

(78,251)

Creditors

(23,744)

(24,247)

(42,910)

(46,223)

(46,288)

(46,694)

(47,103)

Tax and social security

(468)

(357)

(697)

(914)

(914)

(914)

(914)

Short term borrowings

(9,021)

(10,401)

(24,592)

(30,234)

(30,234)

(30,234)

(30,234)

Other

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(27,178)

(29,847)

(58,489)

(70,874)

(65,910)

(65,910)

(65,910)

Long term borrowings

(18,219)

(22,446)

(45,159)

(57,624)

(57,624)

(57,624)

(57,624)

Other long term liabilities

(8,960)

(7,402)

(13,330)

(13,250)

(8,286)

(8,286)

(8,286)

Net Assets

 

 

40,464

40,810

63,542

63,097

63,326

63,626

64,195

Minority interests

0

0

0

0

0

0

0

Shareholders' equity

 

 

40,464

40,810

63,542

63,097

63,326

63,626

64,195

CASH FLOW

Op Cash Flow before WC and tax

5,845

4,851

2,905

7,245

7,834

8,285

8,744

Working capital

1,811

(1,942)

(30)

1,547

124

12

11

Exceptional & other

(129)

(1,262)

(15,092)

(359)

107

107

107

Tax

(1,012)

(87)

556

47

(123)

(485)

(629)

Net operating cash flow

 

 

6,515

1,560

(11,661)

8,480

7,941

7,919

8,232

Capex

(2,107)

(3,914)

(4,095)

(9,849)

(5,900)

(5,586)

(5,642)

Acquisitions/disposals

0

0

0

0

0

0

0

Net interest

(811)

(678)

(692)

(996)

(1,674)

(1,673)

(1,665)

Equity financing

0

0

0

0

0

0

0

Dividends

(600)

(600)

(600)

0

0

(600)

(600)

Other

2,293

5,031

(1,131)

21,436

0

0

0

Net Cash Flow

5,291

1,399

(18,178)

19,071

367

60

326

Opening net debt/(cash)

 

 

19,950

17,189

20,654

60,230

62,383

66,979

66,920

FX

0

0

0

0

0

0

0

Other non-cash movements

(2,529)

(4,865)

(21,397)

(21,224)

(4,964)

0

0

Closing net debt/(cash)

 

 

17,189

20,654

60,230

62,383

66,979

66,920

66,594

Source: Edison Investment Research, company data

Contact details

Revenue by geography

Via Filadelfia 220
10137 Torino
Italy
+39 011 3240200
http://centralelatteitalia.com

Contact details

Via Filadelfia 220
10137 Torino
Italy
+39 011 3240200
http://centralelatteitalia.com

Revenue by geography

Management team

Chairman: Luigi Luzzati

Executive vice chairman and managing director: Riccardo Pozzoli

Luigi Luzzati has been executive chairman of CLT since May 1999 and was one of the previous owners of Centro Latte Rapallo. He assumed chairmanship of CLI on its formation.

Riccardo Pozzoli was chairman of CLT from 1985 to 2000 and has been vice chairman since 2000. He is a member of one of the founding families.

CFO: Vittorio Vaudagnotti

Investor Relations: Edoardo Pozzoli

Vittorio Vaudagnotti is CFO, director of administration & control and head of IR.

Edoardo Pozzoli is corporate director and also head of IR.

Management team

Chairman: Luigi Luzzati

Luigi Luzzati has been executive chairman of CLT since May 1999 and was one of the previous owners of Centro Latte Rapallo. He assumed chairmanship of CLI on its formation.

Executive vice chairman and managing director: Riccardo Pozzoli

Riccardo Pozzoli was chairman of CLT from 1985 to 2000 and has been vice chairman since 2000. He is a member of one of the founding families.

CFO: Vittorio Vaudagnotti

Vittorio Vaudagnotti is CFO, director of administration & control and head of IR.

Investor Relations: Edoardo Pozzoli

Edoardo Pozzoli is corporate director and also head of IR.

Principal shareholders

(%)

Finanziaria Centrale del Latte di Torino SpA

38.63

Comune di Firenze

12.31

Fidi Toscana SpA

6.83

Comune di Pistoia

5.26

Lavia

3.94

Luzzati Family

2.56

Camera di Commercio di Firenze

2.31

Companies named in this report

Parmalat (PLT IM), Dairy Crest (DCG LN), Dean Foods (DF), Saputo (SAP CN), Valsoia (VLS IM), Danone (BN FP)

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Centrale del Latte d'Italia and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Centrale del Latte d'Italia and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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